India has taken a forceful step to curb speculative bets against the rupee, capping open positions banks can hold in the onshore currency market at $100 million at the end of each trading day.
The Reserve Bank of India announced the new rule, effective 10 April, forcing lenders to shrink their books and limit their ability to run large one-sided bets against the rupee.
The move reflects mounting concern about the rupee, which has slid to successive record lows following the Iran war, pushing the RBI to shift away from relying mainly on spot and forward market interventions.
Lenders are seeking to delay the deadline to comply, warning that such a rapid unwind may trigger large losses, and urging that the rule apply only to new bets.
The rupee has fallen more than 4% over the past month to 94.82 as of Friday, and is Asia’s worst performer this year.
The RBI is trying to make it harder for large positions to accumulate in the first place by capping how much risk banks can carry, echoing steps taken in 2011 when the RBI tightened banks’ net open position limits.
The growth in offshore trading has long unsettled the RBI, which has warned that offshore rupee trading is being driven by “speculators and arbitrageurs”.
The market’s rapid expansion has coincided with a persistent slide in the rupee, even as India remains one of the fastest-growing major economies, expanding at more than 7% annually in recent years.
The RBI has widened its approach, proposing stricter reporting rules requiring overseas affiliates of lenders to disclose rupee-linked trades to a clearing house supervised by the RBI.
